Bizarre life settlement drama in Texas nearing an end

Investors to get their money back — in ten years or so

By Darla Mercado

Aug 14, 2012 @ 2:53 pm (Updated 3:13 pm) EST

Texas
Everything's bigger in Texas, even the drama

Clients who invested some $80 million in life settlements that went awry may get their due. It's just going to take a while.

About 900 investors shelled out big bucks to Retirement Value LLC and Hill Country Funding LLC to purchase interests in life settlements, according to authorities in Texas. Both operations, however, wound up under the receivership of securities regulators in the state — and unable to make premium payments on the policies. If those premiums are not paid, the policies will lapse.

But on July 20, state district Judge Gisela D. Triana in Travis County approved a plan of distribution from Eduardo Espinosa, the court-appointed receiver of Retirement Value. Using proceeds from settlements and asset sales, including the sale of an executive's home for $535,000, Mr. Espinosa will continue making premium payments on the pool of life insurance policies.

It could still take well over ten years for the policies to pay off, and clients will be getting back only their principal, said regulators at the Texas State Securities Board. “We're fortunate to be able to make an interim distribution and we expect to pursue other avenues,” said Donald R. Taylor, the receiver for Hill Country Funding and senior partner at law firm Taylor Dunham LLP.

The fiasco dates back to 2010 when the Texas State Securities Board issued a cease-and-desist order against Retirement Value LLC and two executives. The securities board later added Hill Country, an affiliate of Retirement Value, to the legal action. Regulators claimed that the parties persuaded investors to buy into a “resale life insurance investment program” that touted annual returns of 16.5%, payable when the investment matured. Authorities in the state, however, said the investment program wasn't registered in Texas.

Moreover, the life-settlement program was secured by a bond issued by Provident Capital Indemnity — a company not authorized to engage in such business in the state, regulators said. That charge turned out to be the least of Provident's problems. In 2011, the president of the reinsurer was convicted on federal charges that he carried out a massive, $485 million global fraud. According to the Justice Department, the bonds Provident issued to guarantee scores of life settlement programs — including the one touted by Retirement Value — were worthless.

Further, the life expectancy tables used by the two life settlement specialists were also “too short,” according to a report cited in the complaint. Life settlement investors have to pay more money to cover life insurance premiums when insured people live longer than expected.

Regulators appointed receivers for both Retirement Value and Hill Country in 2010 after accusing the firms of securities fraud and deceptive practices in the sale of life settlement investments. Attempts by InvestmentNewsto contact executives at the two companies were unsuccessful.

Though the court entered a temporary injunction against the firms' marketing of the life settlement investments and a civil injunction against the principals, no criminal proceedings have been instituted, Mr. Taylor said.